RBI Monetary Policy: Earlier this month, the Reserve Bank of India (RBI) hiked repo rate by 25 basis points on upside risks to inflation, which JP Morgan’s Chief Emerging Markets Economist, Jahangir Aziz said, was a right choice and hoped that the central bank would continue with more hikes in future to support Indian economy against global economic crisis. In a column in The Indian Express, Jahangir Aziz wrote on Friday, that loose fiscal and monetary policies pushed India to the brink of crisis in 2013, for which taper tantrum was the trigger.
“The central bank has long been entrusted with multiple responsibilities: Delivering on the inflation target; managing government’s debt; and preserving financial stability. In the last policy review, the RBI in raising interest rates rightly chose to prioritise financial stability over the other objectives, Jahangir Aziz wrote in the newspaper.
“Hopefully, it will continue to do so and not be overly influenced by short-term growth-inflation dynamics or debt management issues,” he added. He warned against the strengthening dollar and called for action against it. The rupee weakened by 15 paise to hit a fresh three-week low of 68.16 against the US dollar earlier this month. Forex dealers said the dollar’s rise towards a seven-month high against a basket of its peers, as investors absorbed the escalation in trade tensions between the US and China, weighed on the rupee.
The noted economist explained, “…across all the economies that have come under pressure, namely the ones with large current account deficits and, in turn, high foreign borrowing, there has been a steady decline in policy space because of loose fiscal and, in some cases, monetary policy. Without adequate policy space, these buffers have turned ineffective.”
The RBI hiked repo rate after four-and-a-half years and voted to raise it unanimously. The central bank said that there was a 12% increase in the price of Indian crude basket, which was “sharper, earlier than expected and seems to be durable”.